The High Court has unanimously found that Pt 5.7B of the Corporations Act does not incorporate the “peak indebtedness rule” and has provided guidance as to the proper approach to assessing a “continuing business relationship” for the purposes of s 588FA(3)(a).
Author: Sophie Kearney
The prohibition against creditor-defeating dispositions under s 588FDB has been considered and applied for the first time since its introduction over two years ago. The conduct in question was found to be a brazen and audacious example of phoenixing and the Supreme Court of Victoria made orders voiding the relevant contract.
The Court considered the meaning of insolvent in a contractual context, distinguishing it from the meaning of insolvent for the purposes of the Corporations Act. It concluded that the respondent was insolvent at the relevant time, despite the fact that it was continuing to trade at the time of the hearing, years later.
The Full Court of the Federal Court considered the continuing business relationship exemption under s 588FA(3) of the Corporations Act and the validity of the peak indebtedness rule as a matter of Australian law.